Operational risk measurement

The main objective of this study is to measure the risk level for operational risk of life insurers operated in Malaysia for the period of 2003 to 2010. The operational problem is the major factor contributed to the company´s losses. Due to the operational problems of insurance companies and banks, there is a growing pressure from the regulatory bodies to measure operational risk of these institutions. Volatility is used to measure the level of operational risk and it is used as risk charge to calculate the operational risk capital charge of life insurers. This study found that the volatility of relative revenue is significantly related to operational risk and the risk charge is higher during the crisis period compared to the normal period. Thus, this new risk charge is a better in representing level of operational risk for life insurers in Malaysia.